Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA

Filipa França da SilvaDo venture capitalists help reduce theinformation asymmetry of IPO firms? Evidence from the USAUniversidade do MinhoEscola de Economia e Gestãoabril de 2022 Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USAMinho | 2022UFilipa França da Silva Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA ii Direitos de autor e condições de utilização do trabalho por terceiros Este é um trabalho académico que pode ser utilizado por terceiros desde que respeitadas as regras e boas práticas internacionalmente aceites, no que concerne aos direitos de autor e direitos conexos. Assim, o presente trabalho pode ser utilizado nos termos previstos na licença abaixo indicada. Caso o utilizador necessite de permissão para poder fazer um uso do trabalho em condições não previstas no licenciamento indicado, deverá contactar o autor, através do RepositóriUM da Universidade do Minho. Licença concedida aos utilizadores deste trabalho Atribuição-NãoComercial-SemDerivações CC BY-NC-ND https://creativecommons.org/licenses/by-nc/4.0/ Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA iii Acknowledgments I would like to acknowledge my dissertation supervisor Professor Dr Gilberto Loureiro for all the support and knowledge provided during this time. I would also like to thank Professor Dr Sónia Silva for all the patience and additional knowledge provided to help me in my thesis. I am grateful to my family, my mom Carlota França, my father Manuel Silva, my grandmother Idalina Azevedo, my sister Marta Silva and my brother Tiago Silva for all the support, motivation, and care during this period of my life. And to my grandfather Serafim França, although he could not saw my path along my degree and masters, he was, is and will be always with me. I would like to thank my close friends that supported me all over this path and motivated me to not give up. A special thanks to my dear friend Nádia Oliveira for her useful knowledge and her immense support and friendship during the last years. I am very grateful to my friend Gonçalo Lopes that was always there for me, gave me strength and encourage me to keep my focus in these last months. His patience, attention and motivation provided to me every day and in my most difficult times were very important to conclude this research. To conclude, I am very grateful to my niece Ana Marta that brought joy and happiness along this journey. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA iv Statement of Integrity I hereby declare having conducted this academic work with integrity. I confirm that I have not used plagiarism or any form of undue use of information or falsification of results along the process leading to its elaboration. I further declare that I have fully acknowledged the Code of Ethical Conduct of the University of Minho. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA v Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA Abstract Startup firms and firms with larger proportion of intangible assets have a tendency for higher levels of information asymmetry. Valuing these firms can be challenging when they decide to perform an Initial Public Offering (IPO) and investors usually react adversely to equity offers issued by companies with larger information asymmetries. Taking this into account, venture capitalists can provide value whenever securities are being issued in capital markets and these investors can have an important role in diminishing the information asymmetry of the firms they support. Considering this, it is expected that firms with lower information asymmetries, have lower surprises around earnings announcements and consequently lower stock price reaction and lower trading volume around this event. Using a sample of 1759 firms from United States of America between 2005 and 2020, I formulate several hypotheses based on stock price and trading volume reactions to earnings announcements. Regarding the hypothesis that firms backed by venture capitalists have lower stock price reactions to earnings announcements in the years following the IPO and the hypothesis that trading volume around earnings announcements is smaller for firms backed by venture capitalists, my findings are inconclusive. Considering stock price reactions to earnings announcements in the years following the IPO and the change in trading volume for venture capitalists with higher reputation, no significant conclusions are obtained. This research contributes to the existing literature of venture capitalists and information asymmetries, and it provides insights to analyze how different venture capitalists affect information asymmetries, since they differ in several aspects. Keywords: Earnings Announcements; Event Study; Information Asymmetry; IPOs; Venture Capital Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA vi Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA Resumo Empresas startup e empresas com grandes proporções de ativos intangíveis têm uma tendência para maiores níveis de assimetria de informação. Avaliar estas empresas para as tornar públicas nos mercados financeiros pode ser desafiante e os investidores normalmente reagem adversamente a ofertas de capital emitidas por empresas com grandes assimetrias de informação. Desta forma, os capitalistas de risco podem adicionar valor quando ativos financeiros são emitidos nos mercados de capitais e estes investidores podem ter um papel determinante em diminuir as assimetrias de informação das empresas que apoiam. Assim sendo, espera-se que as empresas com menores assimetrias de informação tenham menores surpresas em torno dos anúncios de lucros, e consequentemente menor reação dos preços das ações e menor volume de transações à volta deste evento. Neste estudo uso uma amostra de 1759 empresas dos Estados Unidos da América entre 2005 e 2020, sendo que formulo várias hipóteses baseadas na reação dos preços das ações e do volume de transações aos anúncios de lucros. Relativamente à hipótese de que as empresas apoiadas por capitalistas de risco têm menores reações dos preços das ações aos anúncios de lucros nos anos após a oferta pública inicial (IPO) e à hipótese de que o volume de transações em torno dos anúncios de lucros é menor para as empresas apoiadas por capitalistas de risco, os resultados obtidos são inconclusivos. Considerando a reação do preço das ações aos anúncios de lucros nos anos após a IPO e as alterações no volume de transações nos mercados financeiros para os capitalistas de risco com reputação mais elevada, não foram obtidas conclusões significantes. Este estudo contribui para a literatura existente acerca de capitalistas de risco e assimetrias de informação. Fornece ainda indicações para analisar como diferentes tipos de capitalistas de risco afetam as assimetrias de informação, uma vez que estes investidores diferem em diversos aspetos. Palavras-chave: Anúncios de Lucros; Assimetrias de Informação; Capital de Risco; Estudo de Caso; Oferta Pública Inicial Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA vii Table of contents 1. Introduction ......................................................................................................................... 1 2. Literature Review ................................................................................................................. 4 2.1 Benefits for firms supported by VC ......................................................................................... 6 2.2 Venture capitalists and information asymmetries in financial markets ........................................ 8 3. Hypotheses and Methodology .............................................................................................. 12 3.1 Methodology ...................................................................................................................... 14 3.2 Models and variables specification ....................................................................................... 16 4. Data ................................................................................................................................ 18 4.1 Data Collection .................................................................................................................. 18 4.2 Summary statistics ............................................................................................................ 18 5. Results .............................................................................................................................. 25 5.1 Univariate Analysis ............................................................................................................. 25 5.2 Multivariate Analysis ........................................................................................................... 27 5.3 Higher Reputation Venture Capitalists .................................................................................. 31 5.4 Correction for endogeneity in decision to be supported by VC ................................................. 35 6. Conclusions ....................................................................................................................... 39 References ................................................................................................................................ 41 Appendix – Definitions and respective DataStream Mnemonics ...................................................... 45 Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 6 can be necessary to divide the group of venture capitalists in different types to see how different venture capitalists affect information asymmetries. 2.1 Benefits for firms supported by VC As previously stated, one reason for firms to perform an IPOs is to allow venture capitalists to cash out and recover their investment in a firm (Gompers & Lerner, 1997). In this case, the venture capitalists can sell shares and receive the return, leaving the control of the business for the original entrepreneurs (Brealey, et al., 2016). Taking this into account, venture capitalists can exit by performing an IPO and invest their assets in other firms that need their funds and experience to evolve and then going public (Jain & Kini, 2000). Several studies focus on the impact that venture capitalists have in the firms they supported. Celikyurt et al. (2014) conclude venture capitalists can have a significant role in mature firms after their IPO and these companies exhibit a positive effect on innovation and investment policies when a venture capitalist director is present in their board. Brav and Gompers (1997) suggest that firms supported by venture capitalists outperform non-venture-backed firms over a five-year period. Gompers and Lerner (1997) also conclude that firms supported by VC have better long-term performance. Taking this into account, it can take some years after the IPO for the venture capitalists fully exit from a company and sell all their shares (Paeglis & Veeren, 2013). In fact, the returns that venture capitalists get are determined by the stock price at the time they sell their shares. Considering this, venture capitalists have incentives to reduce information asymmetries and guarantee that good corporate governance systems are implemented in the firms they support (Hochberg, 2012). Jain and Kini (2000) suggest the presence of VC in firms improve the survival rate of the firms after the IPO comparatively to non-venture-backed firms. Venture capitalists can introduce several benefits to firms they support, since they provide higher levels of R&D expenditures, greater analyst coverage and access to more prestigious investment banks (Jain & Kini, 2000). Jain and Kini (1999) find that IPOs marketed by underwriters with higher reputation tend to reveal superior performance after the IPO comparatively to IPOs promoted by less prestigious underwriters. Considering this, reputable underwriters provide valuable services that can lead to an increase in firm value and reduce information asymmetries in the market. The Information Asymmetry Hypothesis claims that VC participation in financing firms after the IPO is an efficient solution to informational problems, helping the companies to exploit investments that increase Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 7 the value of the firm (Iliev & Lowry, 2020). According to Gompers and Lerner (1997), venture capitalists help to overcome information asymmetries that create capital constraints for startup companies. Taking this into account, the advantages that venture capitalists bring to firms allow them to be less sensitive to cash flows and grow quickly than non-venture-capital firms (Gompers & Lerner, 1997). Previous literature suggests that venture capitalists plan their exits from companies due to their limited life on the businesses and the contracts established by venture capitalists include provisions regarding exits (Paeglis & Veeren, 2013). However, not always these expert investors leave a company after the IPO and they can retain equity in the firms they supported after the firm becomes public for several years (Hochberg, 2012; Paeglis & Veeren, 2013). Indeed, venture capitalists can be present on the board of directors after the IPO, continue to provide access to capital, and help to enhance firms’ performance in the long run (Brav & Gompers, 1997). This is an advantage for firms supported by VC comparatively to other companies, and it can help to reduce information asymmetries. Another important benefit of venture capitalists is related to their certification role. An IPO has a component of information asymmetry, since the potential investors have lower knowledge comparatively to the firm owners (Carter & Manaster, 1990) and information asymmetry produces a context for opportunistic behaviors (Cohen & Dean, 2005). Taking this into account, previous literature suggest that insiders can have incentives for misrepresentation and omission of important information at the time of an IPO (Megginsson & Weiss, 1991). Considering this, potential investors can have some difficulties in believing that accurate information has been disclosed by firms when they perform an IPO (Downes & Heinkel, 1982). However, if a third party has invested and has capital in a company, it can be negatively affected by false disclosures (Megginson & Weiss, 1991). In this case, the presence of third parties in a firm can convince outside investors that credible information is reflected in the price of an IPO. Brav and Gompers (1997) and Megginson and Weiss (1991) suggest that venture capitalists can be the third party which certification provided can bring value in an IPO and these investors have an important role to prevent adverse selection and reduce information asymmetry problems of the type highlighted by Akerlof (1970). Venture capitalists provide a certification role in the public market and this certification role can be seen in lower underpricing in the first day the stock is traded. Indeed, investors are more willing to invest in firms supported by VC than similar firms that are not supported by VC (Gompers & Lerner, 1997). Another way that guarantees a credible certification is when venture capitalists retain their shares after the IPO, since they only can profit from opportunistic behaviors if they sell shares in the IPO for a higher price, that does not reflect all the available and relevant information. Megginson and Weiss (1991) and Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 8 Gompers and Lerner (1997) conclude that venture capitalists are not using the IPO as an opportunity to cash out and realize a return on their investment, because a majority of venture capitalists tend to retain a significant number of shares in the corporations they invested after the IPO. Other studies conclude that venture capitalists have strong incentives to build a credible reputation, since they help companies become public in a regular basis and they want to get access to the IPO market with advantageous terms (Megginson & Weiss, 1991; Nahata, 2008). The success related to the IPO helps to improve the reputation of the VC firm and it is a relevant factor to attract additional capital to venture firms (Jain & Kini, 2000). The venture capitalists’ reputational concerns are important at the time of an IPO (Gompers, 1996) and an increased number of failures associated with a certain VC fund can damage their reputation and their ability to bring firms public in the future. Megginson and Weiss (1991) and Nahata (2008) argue that venture capitalists that invest in firms that achieve success, create a greater reputation for themselves. The reputation of venture capitalists is central to attract potential investors and is useful to create stable relationships with entrepreneurs, investment banks, and others institutional investors (Megginson & Weiss, 1991; Nahata, 2008; Krishnan et al., 2011). According to Jain and Kini (2000), the support of venture capitalists of IPO firms guarantees to the institutional investors that the firm was adequately supervised, financed and is ready to go public. Venture capitalists’ reputation and connections between venture capitalists and institutional investors are important reasons to explain the support of institutional investors to VC-backed IPO firms (Jain & Kini, 2000). Krishan et al. (2011) and Croce and Ughetto (2019) find that superior long-run performance of companies supported by more reputable VC firms can be due to superior venture investment selectivity or superior post-IPO of portfolio firms. Therefore, more reputable VC firms select better-quality portfolio firms and consequently they have better long-run performance. Considering this, more reputable VC firms provide more valuable advisory and monitoring services to the companies they supported (Krishnan et al., 2011). VC firms with higher reputation attract more entrepreneurs and raise funds more easily. 2.2 Venture capitalists and information asymmetries in financial markets Managers have more information than investors about firms and this information asymmetry can lead to inefficiencies in capital markets (Healy & Palepu, 2001; Beyer et al., 2010). Indeed, information asymmetries generate an adverse selection problem among the investors (Fernando et al., 2018) and Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 9 create trading frictions leading consequently to lower liquidity in the financial markets (Leuz & Verrecchia, 2000). First of all, it is important to understand the differences between information asymmetry and information dissemination. According to Duarte et al. (2008), information can be public and require costs and time to interpret it in order to become clear to outside investors. Considering this, the investors with less financial literacy cannot be able to form signals about the value of the firm that are useful for their trading decisions. When the information can easily be translated into signals about the firm value, there is a decrease in information asymmetry, since the firm is making public disclosures that investors can interpret and consider in their decisions (Duarte et al., 2008). However, if the information provided by the company is difficult to interpret by all the outside investors and costly to translate into signals about the value of the firm, there is only an increase in information dissemination. Some investors will take advantage of this information, while the others cannot understand the information release and will not use it in their expectations to form the price of a company (Duarte et al, 2008). These two concepts can happen simultaneously if some information is easy to interpret, while other announcements require more effort and skills to be understood. VC funds build several connections with relevant institutional investors (Gompers & Lerner, 1997) and these connections are important when firms aim to perform an IPO. Venture capitalists can influence market intermediaries such as institutional investors, investment bankers and analysts (Jain & Kini, 2000). Indeed, certain activities and outcomes are more dependent on intermediaries as bankers and analysts for efficient implementation than venture capitalists. Taking this into account, venture capitalists through intermediaries can implement actions in order to achieve the success of the IPO. Venture capitalists can attract investment bankers with higher reputation to the firms they backed. According to Jain and Kini (1999), the bank generates information about the company that helps to reduce information asymmetry and increase firm’s value (Jain & Kini, 1999). Considering this, investment bankers with higher reputation are more likely to be involved with new issues and successful IPOs (Jain & Kini, 1999), and these financial intermediaries are selected in expectation of better services in areas such as pricing. Carter et al. (1998) suggest investment bankers with higher reputation are associated with higher quality services and lower short-run underpricing (Carter et al., 1998; Jain & Kini, 2000). Post-IPO research coverage is also important, since positive analyst reports help to increase demand for the stock of the IPO firms (Jain & Kini, 2000). According to Jain and Kini (1999) larger analyst coverage is associated with superior investment performance of IPO firms and monitoring by analysts provide Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 10 managers with incentives to pursue strategies and decisions to maximize the value of the firm. Taking this into account, IPO issuers tend to ensure high quality research coverage of their firm after the IPO. Venture capitalists can induce higher quality analysts to follow their companies and these analysts will produce higher information about a company, and consequently lowering information asymmetries between the firm and investors (Brav & Gompers, 1996; Jain & Kini, 1999). Indeed, analysts’ coverage is relevant to IPO issuing firms, since they are new in the capital markets and relatively unknown (Jain & Kini, 2020), and the value of the IPO firms can be enhanced when investors become aware of them (Michaely & Womack, 1999). Jain and Kini (1999) conclude that a higher amount of analysts following a stock is associated with superior operating and investment performance of IPO firms.! Womack (1996) studies the ability of analysts to predict or influence stock prices. Indeed, stock prices are significantly influenced by analysts’ recommendations, not only at the immediate time of the announcement but also in the following months (Womack, 1996). Considering this, an important event once a firm is listed on a stock market is earnings announcements. Price reaction and trading volume around earnings announcements are applied to evaluate the impact of an informational event on the capital markets (Fernando et al., 2018). The stock price reaction to this event reflects a variation in the average belief of investors about the value of the stock (Fernando et al, 2018), and the trading volume captures the aggregate response of the market (Abdel-Meguid et al., 2019). According to Kim and Verrecchia (1997), the average price movement in response to an earnings announcement is proportional to the level of additional information presented in the information release. There will be small stock price reactions to the earnings announcement if the information asymmetry between the firm and the market prior to the earnings release is lower and vice-versa. More analyst coverage also improves the information environment of the firm and the earnings announcements become more predictable. The information releases make investors to reconsider their expectations due to information asymmetry and consequently change the trading volume (Beaver, 1968; Diamond & Verrecchia, 1991; Kim & Verrecchia, 1994). According to Bailey et al. (2006), investors with more accurate private information make smaller revisions to their expectations regarding the firm’s value comparatively to investors with less precise private information. Another explanation for changes in trading volume regarding earnings announcements is that investors interpret public announcements in different ways (Bailey et al., 2006). Kim and Verrecchia (1994) conclude the volume reaction to earnings announcements is an increasing function of the magnitude of the price reaction and the level of Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 11 information asymmetry among investors. Considering this, determining how the trading volume reacts to earnings announcements can be useful to infer the quality of the information (Bailey et al., 2006). To sum up, stock price reactions and trading volume to earnings announcements depend on the information of the public announcement, the quality of the pre-announcement information, the cost of information acquisition, the differences in investors’ beliefs and the level of private information asymmetry (Kim and Verrecchia, 1994; Bailey et al., 2006). Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 12 3. Hypotheses and Methodology In this section, I develop the hypotheses of study and explain the methodology that I use in my research. Previous evidence highlights the role of information asymmetry and the differences in information processing by investors in the stock price and trading volume reactions to public information announcements (Diamond & Verrecchia, 1991; Kim & Verrecchia, 1994). According to Sponholtz (2008), earnings announcements can contain information that is relevant to the stock market and the market appears to react efficiently to this information. Earnings announcements possess informational value, since information change according to expectations about the outcome of an event and future returns of a stock (Beaver, 1968). Beaver (1968) study the investors reaction to earnings announcements reflected in the price movements and trading volume of stocks in the weeks around the event. These reactions will be lower when the quality of information provided in the financial markets is better. Based on the literature reviewed above, in particular in Bailey et al. (2006), I formulate the following hypotheses. Hypothesis 1: Stock price reactions to earnings announcements in the years following the IPO are smaller for firms supported by venture capitalists. My first hypothesis focuses on how the level of information asymmetry of IPO firms supported by venture capitalists affects the stock price around earnings announcements. According to Bailey et al. (2006), the magnitude of price reaction depends on the average change in investors’ beliefs. This depends on the degree of the surprise and the precision of the announcement relative to the average precision of the investors’ information. Previous literature suggest that firms sponsored by venture capitalists tend to have lower levels of information asymmetry (Megginson & Weiss, 1991). Taking this into account, I expect small stock price reactions to earnings announcements due to lower information asymmetry between firms backed by venture capitalists and the market. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 13 Hypothesis 1a: Stock price reactions to earnings announcements in the years following the IPO is lower for VC backed firms with more reputation. The quality of the information environment can be better for VC backed firms comparatively to firms not supported by VC. This can result in lower costs of capital, lower costs of information acquisition and more analysts covering the stock (Bailey et al., 2006). According to Shu et al. (2011), firms supported by venture capitalists with higher reputation outperform firms backed by lower reputation venture capitalists. Indeed, this conclusion supports the idea that venture capitalists signaling the quality of the firm and consequently reduce the adverse selection problems for IPOs. Taking this into account, I expect that firms backed by higher reputation venture capitalists have lower stock price reaction to earnings announcements and lower information asymmetries in the years following the IPO. Hypothesis 2: Trading volume around earnings announcements is smaller for firms backed by venture capitalists. The same rationale can be applied to trading volume around earnings announcements. According to Bailey et al. (2006), the trading volume are proportional to the magnitude of the associated price reaction and the level of information asymmetry or different beliefs across investors. Considering that higher volume of trading prior to earnings announcements is associated with higher information asymmetry, I expect smaller volume of trading for firms supported by venture capitalists in the years following the IPOs. Hypothesis 2a: The change in trading volume is lower for companies supported by venture capitalists with more reputation. VC backed firms can attract more analysts and firms with higher reputation can attract even more analysts to follow their companies. Venture capitalists with better reputation are expected to add more value to their companies based on their superior ability to select, monitor, and manage their ventures (Tykvová & Walz, 2007). Taking this into account, I expect lower trading volume and consequently lower information asymmetry for firms backed by venture capitalists with higher reputation. I also expect the market to react positively to high reputation VC, as well as the firms in which venture capitalists with higher reputation invested to experience higher performance after their IPOs and lower information asymmetries (Lee et al., 2011). Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 14 3.1 Methodology In this subsection, I present the methodology I use to conduct the event study. An event study measures the impact of a specific event on the value of a company and these studies assume the market immediately incorporates any new information about the firm (MacKinlay, 1997). Previous studies support the hypothesis that earnings announcements convey useful information for firm valuation (MacKinlay, 1997). Considering this, the event is the earnings announcements and I use different event windows, specifically [-1,1], [-2,2] and [-5,5], to capture the effects of earnings announcements on the stock price and on the trading volume. To perform this study, I define the estimation window, over which the parameters of the normal model returns are estimated, and I also define the post-event window. The estimation window is important to estimate the expected stock price if the event does not occur. In this study I use an estimation window with the interval of [-255, -25] with respect to the earnings announcement day.! I compute the estimates for the normal performance model and the abnormal returns. The abnormal returns are defined as the difference between actual returns and normal returns over the event window (MacKinlay, 1997). The abnormal returns can be used to understand if there is any information content in the earnings announcements and how quickly the market reacts and adjust to the new information (Sponholtz, 2008). I use one-factor model that assumes a linear relation between the market return and the stock return. The market model is estimated over the estimation window using Ordinary Least Squares (OLS) and this model is computed as follows: !!" =#!+%!!#" +&!" (1) Where !!" is the stock returns on security i and !#" is the market portfolio for period τ. &!" is the residuals, '#! and %!' are the parameters of the market model. The S&P 500 index is used for the market portfolio. The abnormal return for firm i is given by equation (2), where the predicted return is # ( !−% * !!#" : +!!" =!!" −#(!−% *!!#" (2) τ can assume different values and it is equal to 0 at the time of the announcement. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 15 The abnormal return observations must be aggregated in order to make inferences about the earnings announcements. Taking this into account, the cumulative abnormal return (CAR) is given by: ,+!!(.$,.%)= 1 +!!" "! "&"" (3) As previously mentioned, I use three window lengths and the CARs are computed for each one. According to MacKinlay (1997), observations must be aggregated over the event window and across all firms and considering there is no overlap of the event windows across companies to imply that the abnormal returns and the CARs will be independent across securities. Another important measure to analyze the previous hypotheses is the trading volume. Abnormal trading volume captures the aggregate response of the market, and it is a good proxy for cross investor asymmetry (Fernando et al., 2018). This measure can be defined as the difference between trading volume and the mean of the daily volume for the stock over the pre-announcement window (Fernando et al., 2018). I compute the abnormal trading volume applying the method from Tkac (1999). According to Tkac (1999), there is a theoretical prediction that market-wide trading converts into trading each asset considering its relative value in the market. Taking this into account, an empirical implication is formulated in terms of turnover ratios. Turnover ratios are predicted to be similar across firms and equal to the market turnover ratio each period where 23!" is the turnover in firm i at time τ and 23#" is the market turnover at time τ. 23!" =' $'value'traded' $'value'outstanding'in'stock'D'' 23#" =' $'value'traded $'value'outstanding'in'the'market (4) (5) Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 22 Panel B: Summary statistics for VC-backed versus non-VC backed firms Firms not supported by VC VARIABLE N MEAN MEDIAN SD Forecasts 3862 .975 1.059 4.97 Earnings 5424 .879 0.280 1.434 Earning Surprise 3600 1.636 0.488 8.111 Total Assets 6313 2015950.9 644353.000 3643228 Log Total Assets 6313 13.143 13.376 2.025 Market Value 5864 1534.521 469.510 2965.318 Book Value 5965 9.035 5.071 26.085 Book Market 3836 .048 0.008 .226 Total Debt 6238 911107.68 208824.500 1790984 Leverage 6237 .393 0.354 .385 Total Sales 6561 1302685.3 455410.000 2163893.9 Sales Growth 5898 41.947 11.050 161.13 Analysts 3884 7.244 6.000 5.545 Dispersion 9454 1.523 0.440 6.401 Firms supported by VC VARIABLE N MEAN MEDIAN SD Forecasts 2917 -1.913 -0.049 8.727 Earnings 3922 .326 0.000 1.121 Earning Surprise 2694 3.255 0.549 12.003 Total Assets 4558 513328.73 151531.500 1637577.6 Log Total Assets 4556 11.925 11.929 1.502 Market Value 4261 1122.121 377.100 2370.688 Book Value 4407 3.029 2.625 25.101 Book Market 2731 .042 0.007 .205 Total Debt 4520 95578.48 3338.000 451895.13 Leverage 4518 .188 0.038 .375 Total Sales 4745 309941.49 79297.000 971421.43 Sales Growth 4134 81.621 27.295 225.963 Analysts 2919 7.835 6.000 6.254 Dispersion 7743 2.214 0.421 8.338 Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 23 Panel C: Median values of the main variables for the full sample by industry Industry SIC code Analysts Dispersion Earnings surprise Log Assets Sales Growth Mining 10-14 5.00 0.598 0.626 13.190 13.040 Construction 15-17 6.00 0.319 0.664 13.650 15.275 Manufacturing 20-39 5.00 0.542 0.879 11.748 8.215 Transportation & Public Utilities 40-49 6.00 0.392 0.403 13.963 12.210 Wholesale Trade 50-51 5.00 0.477 0.343 13.470 12.030 Retail Trade 52-59 8.00 0.356 0.340 12.993 11.410 Services 70-89 7.00 0.343 0.415 12.435 20.080 Public Administration 91-98 3.50 0.191 0.843 12.912 9.310 Panel A of Table 2 exhibits summary statistics regarding the main variables used in this study for all the firms. Considering this, the statistics for all the firms in the sample show that the average firm in this study has 1385.9 millions of USD in total assets and 886 millions of USD in total sales. Regarding the sales growth the mean is 58.296% and the median is only 16.290%. The positive level of sales growth indicates that in this sample period the average evolution of sales level is increasing. The book value has a mean of 6.483 thousands of USD and a median of 3.618 thousands of USD with a standard deviation of 25.842. The market value has a mean of 1360.967 million dollars. The book to market ratio exhibits a mean of 0.046 and a median of 0.007. This mean is close to the median and considering that, this variable has a low standard deviation. The average absolute earnings surprise is 2.329, but the median is only 0.505 which indicates some dispersion in this variable. Panel B of Table 2 reports summary statistics for firms not supported by VC and firms supported by VC in order to make a comparison between these companies. These statistics show that firms supported by venture capitalists are smaller than firms not supported by VC (Total Assets). In comparing the firms supported by VC and firms not supported by VC, it appears that firms supported by venture capitalists have more growth opportunities measure by past sales growth. Regarding mean sales, firms supported by VC have lower values of sales comparatively to firms not supported by VC. However, firms supported by VC have a mean sales growth rate significantly higher. Firms supported by VC are less levered (Leverage) than firms not supported by VC. The number of analysts following a firm is higher for firms supported by VC, although this difference is not significant. The absolute value of Earnings Surprise is higher for firms supported by VC. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 24 Panel C of Table 2 shows the median values by industry groups of the main variables applied in this study. The most frequent industries in this sample are manufacturing and services. The services industry has high median values for sales growth and analysts, that are important independent variables applied in this research. The number of analysts is higher for services industry and the retail trade industry. The manufacturing industry exhibits the lowest median of sales growth in this sample. The median dispersion is higher for mining industry and the earnings surprise have a higher median value for manufacturing industry. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 25 5. Results 5.1 Univariate Analysis CARs are used to measure the impact that earnings announcements have on firms since they represent the investors’ reaction to the event. I expect to find positive/negative reactions to earnings announcements and for that I perform several regressions. I start by performing a univariate analysis regarding the absolute CARs for three different event windows, respectively [-1,1], [-2,2] and [-5,5]. Table 3 presents the results of the event study around the announcement day for 6517 observations. This table also reports the difference in means between firms non-backed by VC and firms backed by VC. The immediate effect of this event is statistically different from zero for all the event windows computed. These statistically significant positive market reactions reveal that investors perceived the earnings announcements as a positive surprise. The mean absolute CAR for a 3-day event window is 7,56%, for a 5-day event window is 8,57% and for a 11-day event window is 10,52%. However, it is difficult to reach important conclusions from this table. Indeed, to evaluate the ability that venture capitalists have to improve the quality of firms’ information, it is important to evaluate other variables. Table 3. Absolute Cumulative Abnormal Returns – Univariate Analysis The table presents the mean absolute cumulative abnormal returns around earnings announcements date for the full sample and three different event windows. Firms are split between firms non-supported by VC and firms supported by VC, considering the presence of at least one venture capitalist in the company. The absolute CARs are winsorized at 1% and 99% of the distribution. The estimation window is the interval [-255, -25]. A t-test is performed to conclude if the mean absolute CARs are statistically different between the two groups of firms. The differences obtained are reported in absolute terms. All variables are defined in Appendix A. *** Significant at the 1% level, ** Significant at the 5% level, * Significant at the 10% level. Differences in means Event-window Total Sample NonVC VC |NonVC - VC| [-1,1] 0.0756*** 0.0682*** 0.0847*** 0.0170*** [-2,2] 0.0857*** 0.0766*** 0.0970*** 0.0188*** [-5,5] 0.1052*** 0.0942*** 0.1187*** 0.0236*** Observations 6,517 3,593 2,924 Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 26 Regarding the difference in means between firms non-backed by VC and firms backed by VC, I use a t-test for the differences in means between the two groups. Considering the results obtained, we can conclude that exist differences in means for these firms. Another important measure to analyze and achieve different conclusions is the trading volume. Abnormal trading volume captures the aggregate response of the market, and it is a good proxy for cross investor asymmetry (Fernando et al., 2018). I performed a univariate analysis as the previous one and thereafter I perform regressions on several explanatory variables Table 4 presents the results of the event study around the announcement day for three different event windows, respectively [-1,1], [-2,2] and [-5,5]. In this table, I also include the differences in means, to conclude if the absolute CAVs are statistically different between firms non-backed by VC and firms backed by VC. Table 4. Absolute Cumulative Abnormal Volume – Univariate Analysis The table presents the absolute cumulative abnormal trading volume around earnings announcements date for the full sample and three different event windows. Firms are split between firms non-supported by VC and firms supported by VC, considering the presence of at least one venture capitalist in the company. The absolute CAVs are winsorized at 1% and 99% of the distribution. The estimation window is the interval [-255, -25]. A t-test is performed to conclude if the mean absolute CAVs are statistically different between the two groups of firms. The differences obtained are reported in absolute terms. All variables are defined in Appendix A. *** Significant at the 1% level, ** Significant at the 5% level, * Significant at the 10% level. Differences in means Event-window Total Sample NonVC VC |NonVC - VC| [-1,1] 2.4141*** 2.2849*** 2.5624*** 0.3570*** [-2,2] 2.5221*** 2.4250*** 2.6335*** 0.3164*** [-5,5] 3.7258*** 3.7077*** 3.7465*** 0.1513*** Observations 5,257 2,808 2,449 The univariate analysis exhibits statistically significant values at 1% level for the three event windows analyzed. This analysis is univariate, and it is complemented with a multivariate analysis to test whether the different variables have any different impacts on the results. Regarding the difference in means between firms non-backed by VC and firms backed by VC, we can conclude that exist differences between the firms. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 27 5.2 Multivariate Analysis In this subsection, I include several variables in order to get their impacts in the dependent variables and reach conclusions regarding information asymmetry. Previous studies suggest that variables like the number of analysts, the absolute earnings surprise, total assets, sales growth and dispersion are important to include in this analysis (Bailey et al., 2006). Considering the study of Bailey et al. (2006), several specifications are estimated for different event windows around the earnings announcement event. Table 5 exhibits a multivariate analysis wherein the dependent variable is the absolute CAR. Regarding hypothesis 1, it is expected that firms supported by venture capitalists have lower levels of stock price reaction in comparison to firms not supported by venture capitalists, since we expect venture capitalists to reduce information asymmetries among investors. However, the results obtained regarding the VC variable are inconclusive and not the expected. Taking into account the previous results, the variable regarding VC is important to give answers to hypothesis 1. Considering these results, VC is statistically significant for model (3) at 5% level. The coefficient is positive and statistically significant. The positive and statistically significant coefficient on VC of 0.0089 for model (3) can be compared with the constant of 0.1101. Considering this, firms supported by venture capitalists experience an increase of 8,1% relatively to the benchmark firms. These results suggest that stock price reaction is higher for firms supported by VC, indicating that there is evidence that implies that when venture capitalists support a firm, the absolute CAR increase. These results are weak and inconclusive. Previous literature suggest that venture capitalists have incentives to reduce information asymmetries and improve the quality of firms’ information (Gompers & Lerner, 1997; Hochberg, 2012). Other studies reinforce the importance of institutional and information quality in explaining returns volatility (Bailey et al., 2006). Considering this, it is expected the stock price to decrease. However, I hypothesize some explanations to explain an increase in the stock price reaction. The increase in stock price for firms supported by VC can be due to uncertainty about the future of the firm when it becomes public even if it is supported by venture capitalists. Indeed, there is high uncertainty around VC investments (Cochrane, 2005) and investors can take this into account in their investment decisions. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 28 Table 5. Absolute Cumulative Abnormal Returns – Multivariate Analysis This table exhibits the results to hypothesis 1 for three different event windows. VC is a dummy variable that equals the value of one if the IPO firm is supported at least by one venture capitalist. All firm-level data is retrieved from Refinitiv Eikon DataStream. The variables are winsorized at 1% and 99%. The estimation window is the interval [- 255, -25]. The regressions incorporate year and industry fixed effects. Heteroskedasticity robust t-statistics in parentheses. All variables are defined in Appendix A. *** Significant at the 1% level, ** Significant at the 5% level, * Significant at the 10% level. (1) (2) (3) (4) (5) (6) VARIABLES CAR [-1,1] CAR [-1,1] CAR [-2,2] CAR [-2,2] CAR [-5,5] CAR [-5,5] Analystst 0.0006** 0.0006** -0.0005* -0.0003 -0.0007** -0.0006* (2.23) (2.40) (-1.66) (-1.02) (-1.98) (-1.87) Dispersiont -0.0000 -0.0000 -0.0004** -0.0004** -0.0004 -0.0004 (-0.11) (-0.11) (-2.18) (-2.28) (-1.53) (-1.56) Earnings Surpriset 0.0001 0.0001 0.0004*** 0.0004*** 0.0004** 0.0004** (1.01) (1.01) (2.87) (2.94) (2.17) (2.19) Log assetst-1 -0.0037*** -0.0037*** -0.0042*** -0.0054*** -0.0079*** -0.0084*** (-3.15) (-3.48) (-2.95) (-4.27) (-4.72) (-5.60) Sales Growtht 0.0000 0.0000 -0.0000* -0.0000* -0.0000 -0.0000 (0.45) (0.46) (-1.86) (-1.76) (-0.07) (-0.04) VC 0.0001 0.0089** 0.0035 (0.03) (2.22) (0.72) Constant 0.0732*** 0.0734*** 0.1101*** 0.1278*** 0.1789*** 0.1858*** (4.60) (5.11) (5.39) (6.99) (6.83) (7.75) Observations 2,763 2,763 2,763 2,763 2,763 2,763 R-squared 0.109 0.109 0.100 0.098 0.064 0.064 Robust t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1 Another explanation is related to differences between the different types of VC funds. Indeed, there are several types of venture capitalists, like independent, corporate, and public VC, young and experienced VC, international and national VC (Tykvová & Walz, 2007). Considering this, different venture capitalists differ considerably in their objectives, experience and governance structures and these differences can have significant impacts regarding information asymmetries. The investors can take these differences into account, and I hypothesize this as a possible explanation for the higher stock price reaction found in the previous results. To conclude, this sample includes the financial crisis period. This can have impacts in Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 29 the results due to the negative impact of investor sentiment about investing in new firms that perform an IPO in financial markets. In the previous results several variables are statistically significant at different levels and for different event windows. The logarithmic of the assets in the previous year is statistically significant at 1% level for all the event windows. This means that an 1% increase in total assets, decrease the absolute CAR, ceteris paribus. The coefficient of absolute value of earnings surprise is positive and statistically significant for models (3) and (4) at 1% level, and it is also positive and significant for models (5) and (6) at 5% level. This can suggest that the sensitivity of absolute CARs to earnings surprise has a positive impact in the dependent variable. After performing an analysis regarding the absolute CAR, I present the results that I obtain from a multivariate analysis regarding the absolute CAV as a dependent variable in Table 6. Indeed, several studies focus on trading volume, since it reflects the average change in investors’ expectations revisions due to information asymmetry (Bailey et al., 2006). Regarding hypothesis 2, it is expected that firms supported by venture capitalists have lower levels of trading volume in comparison to firms not supported by venture capitalists, since we expect venture capitalists to reduce information asymmetries among investors. The results exhibit that the variable VC is statistically significant for model (5). The coefficient is negative indicating that there is evidence that when venture capitalists support a firm, the absolute CAV decrease. The negative and statistically significant coefficient on VC of -0.6126 in model (5) represents a 5.6% lower absolute CAV than that for benchmark firms. This means a decrease in volatility as expected. These findings are consistent with the idea that firms with higher institutional quality and better information environment are important to explain the trading volume reactions and display lower volatility around earnings announcements (Bailey et al., 2006). However, there is no clear evidence to not reject the hypothesis 2. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 30 Table 6. Absolute Cumulative Abnormal Volume – Multivariate Analysis This table exhibits the results for hypothesis 2 for three different event windows. VC is a dummy variable that equals the value of one if the IPO firm is supported at least by one venture capitalist. All firm-level data is retrieved from Refinitiv Eikon DataStream. The variables are winsorized at 1% and 99%. The estimation window is the interval [- 255, -25]. The regressions incorporate year and industry fixed effects. Heteroskedasticity robust t-statistics in parentheses. All variables are defined in Appendix A. *** Significant at the 1% level, ** Significant at the 5% level, * Significant at the 10% level. (1) (2) (3) (4) (5) (6) VARIABLES CAV [-1,1] CAV [-1,1] CAV [-2,2] CAV [-2,2] CAV [-5,5] CAV [-5,5] Analystst -0.0183 -0.0203* -0.0200 -0.0261** -0.0168 -0.0338** (-1.55) (-1.80) (-1.59) (-2.41) (-0.92) (-2.23) Dispersiont 0.0241*** 0.0240*** -0.0116 -0.0118 0.0016 0.0009 (2.95) (2.95) (-1.30) (-1.32) (0.10) (0.06) Earnings Surpriset -0.0205*** -0.0206*** 0.0106 0.0104 0.0205 0.0199 (-4.47) (-4.51) (1.27) (1.23) (1.25) (1.20) Log assetst-1 -0.2661*** -0.2574*** -0.4849*** -0.4588*** -0.6632*** -0.5905*** (-4.47) (-4.44) (-6.78) (-7.38) (-5.83) (-5.86) Sales Growtht 0.0005 0.0005 -0.0001 -0.0000 -0.0012* -0.0011* (1.20) (1.21) (-0.15) (-0.09) (-1.86) (-1.71) VC -0.0733 -0.2191 -0.6126* (-0.36) (-1.04) (-1.88) Constant 4.9738*** 4.8515*** 7.4781*** 7.1124*** 10.8941*** 9.8718*** (5.33) (5.34) (6.82) (7.20) (7.06) (7.25) Observations 1,501 1,501 1,501 1,501 1,501 1,501 R-squared 0.108 0.108 0.115 0.114 0.118 0.115 Robust t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1 To conclude, several variables are statistically significant at different levels and for different event windows. The absolute CAV is significantly and negatively related to the absolute earnings surprise for models (1) and (2). The number of analysts is negative and statistically significant for all the regressions performed. The coefficient of logarithm of assets is negative and statistically significant for all the models, which means that absolute CAVs are explained in part by the degree of assets. The coefficient for sales growth is negative and statistically significant for models (5) and (6). This means that an increase of 1% Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 31 in sales, decrease the absolute value of trading volume in 0.12% for model (5) and decrease the absolute value of trading volume in 0.11% for model (6), ceteris paribus. These analyses provided mixed evidence and in general not support the hypotheses that venture capitalists help to reduce the information asymmetry of the firms they backed, at least regarding the quality of information about earnings announcements. 5.3 Higher Reputation Venture Capitalists Reputation of the firm and the reputation of their affiliates is a valuable intangible asset in markets where the quality is uncertain and information is asymmetric (Lee et al., 2011; Shu et al., 2011). Market participants several times rely on third parties as signals of firms’ quality and potential (Carter & Manaster, 1990; Megginson & Weiss, 1991). Indeed, high reputation venture capitalists are third parties that provide several advantages to a firm, improving their operating activities and implementing corporate strategies that improve the firms’ performance (Jain & Kini, 2000; Lee et al., 2011). Taking this into account, high reputation venture capitalists can reduce information asymmetry. Considering this, I use reputation of venture capitalists as a proxy for the unobservable capabilities and the future performance of the firm (Rindova et al., 2005), since venture capitalists have a financial and reputation interest to see the firms they support to succeed, and they are more willing to invest time and resources to make a firm successful (Lee et al., 2011). There are several proxies of VC reputation. I use the market share in total IPO proceeds in the preceding year as a proxy of VC reputation (Krishnan et al., 2011). To obtain the high reputation measure, I start by compute the market share for each VC fund that invested in the IPO firm and afterwards I identify the VC funds that have the market share above the median in the previous year. In this subsection, I present the results of the regressions that I obtain to test the hypothesis 1a and the hypothesis 2a. These models are similar to the previous ones, however, I include the interaction between VC and high reputation venture capitalists (VC*HR) to test the stock price reactions to earnings announcements, as well as the trading volume, in the years following the IPO for firms supported by venture capitalists with higher reputation. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 38 5, it is only positive and statistically significant for event window [-2, 2]. The second-pass Heckman regression estimates exhibit that the coefficient for l is positive and statistically significant for the event window [-1, 1], indicating the presence of an upward selection bias toward the coefficient on VC in absolute CAR. Panel B of Table 8 repeats these models for absolute CAV. These results suggest that the likelihood of firms being supported by VC depends positively on the number of analysts following the firm and the dispersion. However, the likelihood of firms being supported by VC depends negatively on total assets, total sales, leverage and the logarithm of assets in the previous year. Regarding the Heckman model, the coefficient on l is positive and statistically significant for an event window [-5, 5], indicating the presence of an upward selection bias toward the coefficient on VC in absolute CAV. The variable VC is not statistically significant for any event window, while in the Table 5, it is positive and statistically significant for event window [-5, 5]. Considering this, the coefficient for specification (4) become insignificant, indicating that the earlier findings are attributable to the selection bias. This analysis is limited by the variables chosen to represent the selection bias, however it can be seen some sensitivity in the results to the selection-bias correction. Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 39 6. Conclusions My research analyses the impact that venture capitalists can have in IPO firms to reduce asymmetric information in financial markets. This is an important topic of study, since startup firms and firms with larger proportion of intangible assets have a tendency for higher levels of information asymmetry. Indeed, valuing these firms can be challenging when they decide to perform an IPO and investors usually react adversely to equity offers issued by companies with larger information asymmetries, resulting several times in higher underpricing. Taking this into account, venture capitalists can help reduce the information asymmetry problems of IPO firms and help these companies to succeed at the time they become public. To perform this study, I use a sample of 1759 firms, which 939 firms are non-backed by venture capitalists and 820 firms are backed by venture capitalists between January 2005 to January 2020. Following the study of Bailey et al. (2006), I formulate several hypotheses based on stock price reactions to earnings announcements and the reaction of trading volume to these events. My dissertation makes several contributions to existing research in VC and information asymmetries in financial markets. Previous literature suggests that venture capitalists help to reduce the information asymmetry of the firms they support and provide higher information disclosure, however I do not find evidence that firms supported by VC have lower levels of information asymmetry. My findings reject the hypothesis that firms backed by venture capitalists have lower stock price reactions to earnings announcements in the years following the IPO. Indeed, the results obtained are the opposite and inconclusive. The reasons why this occurred can be various. My sample includes the financial crisis in the period analyzed and this can lead to higher levels of volatility for firms due to the uncertainty lived in the financial markets. Another justification is that different industries also have associated different volatilities (Li & Mohoney, 2011), and this can be associated to more uncertainty in some industries supported by VC funds. Another possible explanation is provided by Tykvová and Walz (2007) that suggest that VC is too heterogeneous and a simple comparison between firms supported by VC and firms not supported by VC is not sufficient to reach significant conclusions. Further studies can divide the group of venture capitalists in different types to see how different venture capitalists affect information asymmetries. Indeed, it would be interesting to investigate with detail the actual explanations for these findings. Regarding the hypothesis that trading volume around earnings announcements is smaller for firms backed by venture capitalists, my results go in this direction. However, there is not clearly evidence about these results. Considering stock price reactions to earnings announcements in the years following Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 40 the IPO and the change in trading volume for venture capitalists with higher reputation, no significant conclusions are obtained. This study provided mixed evidence, however in general it does not support the hypotheses analyzed. The conclusions of this study have several limitations. The sample selection only incorporates IPO firms from USA. Another limitation is related to the variables chosen to perform this research, as well as the sample period. There are also different methods and tests that could have been implemented to improve the robustness of my results. Indeed, there is the possibility that analyzing stock price/volume reaction to earnings announcements cannot be the best way to study information asymmetries for younger firms, growing firms and companies that performed an IPO recently, since these firms have more uncertain cash flows even backed by VC. Besides these limitations, there are several opportunities for further research to extend the current study and address some of its limitations. First, it can be interesting to compare firms supported by VC and firms not supported by VC in a longer period of analysis, for different countries and different industries. Moreover, further research can study how different types of venture capitalists affect information asymmetries, since VC funds differ in several aspects. 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The residual from the volume model proposed by Tkac (1999). Current earnings (EPS). Median analyst earnings forecast (EPS1FD12). The number of analysts that follows each firm (EPS1NE). Sum of total current assets, long term receivables, investment in unconsolidated subsidiaries, other investments, net property plant and equipment and other assets (WC02999). The book value per share (WC05476). The book value of equity divided by the market value of equity, Absolute value of cumulative abnormal returns over a threeday windows [-1, 1], a five-days windows [-2, 2], and an eleven-days windows [-5, 5]. Sum of long and short-term debt (WC03255). Standard deviation of analyst’ forecasts. Earnings announcements dates. Absolute value of difference between actual earnings and the mean analyst forecast. Total debt (short-term plus long-term debt) divided by total assets. Share price multiplied by the number of ordinary shares (MV). Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Datastream Do venture capitalists help reduce the information asymmetry of IPO firms? Evidence from the USA 46 Sales Sales Growth VC Industry – level SIC Code Net sales or revenues (WC01001). Percentage change in sales over a one-year period (WC08631). Firm supported by venture capital. 4-digit Standard Industrial Classification (SIC) code. Datastream Datastream SDC Platinum SDC Platinum